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Nirmal Bang Report
Capacity utilisation dipped to ~60% on account of the second Covid-19 wave. Capacity utilisation remains well below the 75-80% required for any meaningful capex recovery and may continue to act as a drag on gross fixed capital formation.
At the same time, high frequency capex indicators have inched back to above pre-Covid levels, supported by the government’s infrastructure push.
The operating profitability of BSE Capital Goods companies has also witnessed a turnaround, although profitability growth slowed to 46.21% YoY in Q2 FY22 from 135.1% YoY in Q1 FY22 on account of margin pressure, weighed down by rising raw material prices and a higher base.
Government capex spending remains supportive. However, emerging evidence suggests slowdown in sectors such as road construction.
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